Emergence of Green GDP

AN ECONOMICS PROJECT SUBMISSION ON THE EMERGENCE OF GREEN

GDP IN INDIA

NAME

: PRACHETA KAR

DESIGNATION

: 3rd SEM., B.A. LL.B. (pursuing)

ROLL NUMBER

: 2011/ BA LLB/ 051

NAME

: RISHABH SAXENA

DESIGNATION

: 3rd SEM., B.A. LL.B. (pursuing)

ROLL NUMBER

: 2011/ BA LLB/ 044

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Emergence of Green GDP

TABLE OF CONTENTS

Introduction................................................................................................................................2
Evolution of the Concept of Green GDP & Indian Actions.......................................................3
Indias stress on Green Accounting............................................................................................4
Policy Issues...............................................................................................................................4
An important aspect: Sustainable Development........................................................................6
Calculation in Green GDP.........................................................................................................6
Rio+20 Earth Summit Conclusions........................................................................................9
Green Jobs Creation.................................................................................................................10
Conclusion................................................................................................................................10

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Emergence of Green GDP

Introduction

Development is a multi-faceted word and it has been used as a tool/means/excuse/reason by

politicians, industrialists, & other interested parties to exploit the resources around us in
abundance. Till 1990s this unfettered exploitation was going all guns with there being no
word of opposition but that is when things started to change for the worse. New data came up
which showed how this unabashed approach was killing earth and making it dangerous for its
own inhabitants. In short, instead of approaching development, we had booked a ticket for
destruction. The need for a change of course was felt immediately and this forms the
backdrop of the emergence of the concept of Green GDP
With the fast development of the economy, people consume a lot of resources and cause
many problems about ecological environment. The harmonious and sustainable development
between environment and economy has become a hot topic throughout the world. Green GDP
is just the frontier subject in this situation; it studied chiefly how to establish a connection
between the environment and national economy. Many areas home and abroad have been
begun to propose Green GDP accounting. The study in Green GDP has important
significance for promoting sustainable development of social economy

Evolution of the Concept of Green GDP & Indian Actions

The green gross domestic product (green GDP) is an index of economic growth with the
environmental consequences of that growth factored in. Green GDP monetizes the loss
of biodiversity, and accounts for costs caused by climate change. This is an idea that has
gained in popularity over the past 20 years, ever since the Rio Earth Summit in 1992. In 1993
the Bureau of Economic Analysis, the official bookkeeper of the U.S. economy, began
responding to concerns that the GDP needed retooling. The agency began working on a green
accounting system called Integrated Environmental and Economic Accounts. The most
promising national activity on the Green GDP has been from India. The country's
Environmental Minister, Jairam Ramesh, stated in 2009 that It is possible for scientists to
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Emergence of Green GDP

estimate green GDP. An exercise has started under the countrys chief statistician Pronab Sen
and by 2015, Indias GDP numbers will be adjusted with economic costs of environmental
degradation. If appropriately constructed and maintained, a green GDP would help us link
market consumption to decreased availability of public goods, act as an early warning system
for losses in environmental public goods, and promote policy experimentation. Beginning in
2010, India, as part of its five year plan, aims to factor the use of natural resources into its
GDP as a means of underscoring its actions in the fight against global warming. And by 2015
the aim is to report on "Green GDP" figures.
. While GDP has some merits it is a great way to measure the size of an economy its a
poor measure of welfare. GDP, as it currently measures market transactions, generally fails to
include the environment. When it does, the environment tends to fall on the wrong side of the
balance sheet; pollution and the mitigation of that pollution alike contribute to the GDP. This
paints a picture that environmental degradation actually benefits a countrys economy. Green
gross domestic product, then, or green GDP, measures economic growth while factoring in
the environmental consequences, or externalities, of that growth. There are methodological
concerns how do we monetize the loss of biodiversity? How can we measure the economic
impacts of climate change due to green house gas emissions? While the green GDP has not
yet been perfected as a measure of environmental costs, many countries are working to strike
a balance between green GDP and the anachronistic GDP, though the results may be
politically and economically unsavoury. China is perhaps the most notable example; the
country began efforts to track green GDP in 2004. The results were significant economic
loss due to environmental degradation was estimated to exceed $66 billion USD, or more
than three percent of the countrys economy. Efforts to track green GDP in China ceased in
2007 when accounting for green GDP, growth rates were reduced to levels so low that some
provinces failed to see any gains.

Indias stress on Green Accounting

Indias environmental minister Jairam Ramesh hopes to make green accounting a reality as
part of Indias governmental policy on economic growth. Ramesh estimates that by 2015,
India should be able to provide alternative GDP estimates that account for the domestic
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Emergence of Green GDP

consumption of natural resources. Specifically, these estimates will provide details on the
amount of natural resources that are consumed during the course of economic growth, the
degree to which the environment is being degraded as part of the growth process, and the
amount of mitigation that occurs as a means of correcting this degradation.
This obviously presents a number of institutional and policy related challenges. First and
foremost, governments do not want to give off the impression that economic growth and
development has stalled, either to their constituents or to the international economic
community. Accounting for environmental degradation may lead to a significantly lower
GDP, which has made many developing countries reluctant to measure environmental
impacts. The Chinese example, the preeminent experiment in green GDP, has served to
reinforce this fear.

Policy Issues

From a policy standpoint, the primary concerns surround how to properly measure
environmental degradation in monetary terms, and how that information will be gathered. In
developing countries like India, this often has to do with the issue of property rights.
Clarifying ownership will help to put a value on clean air, clean water, and other resources.
Commonly, this valuation system takes the form of cap and trade or similar policies,
effectively allowing the market to determine the price of environmental goods and services.
For green GDP to be most effective, companies and other users are relied on to accurately
report pollution emissions. This is one of the many problems of being able to buy the
right to pollute market prices may encourage a polluter to lie in order to keep its
emissions within its allotted limits, which would reduce the accuracy of a green GDP
measurement. Putting a price on the right to pollute may also stall green innovation that may
be beneficial to development and traditional GDP it may be more economically beneficial
for a polluter to buy up more pollution credits than to implement new technologies or retrofit
existing ones.
India is part of the BRIC countries, four major world economies that are characterized by
their fast growth. India is joined by Brazil, Russia, and China in this designation, though

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Emergence of Green GDP

India is one of the countries most threatened by the effects of climate change. Like its fellow
BRICs and other developing countries alike, India faces the challenge of increasing
development and quality of life for its poorest citizens. The millions of impoverished
individuals in India rely heavily on the combustion of fossil fuels. Some half a billion people
in India still lack access to electricity this means coal is used for as much as 70% of Indias
power needs. Leadership in New Delhi recognizes the need to depart from the path taken by
many developed countries that are reliant on coal, oil and natural gas and, with a little
guidance from rich nations; a transition to a low-carbon future in India could be closer than
we think.
Unfortunately, conventional methods of calculating economic growth, such as the GDP, do
not take into account the costs on account of environmental depletion, degradation, or loss of
biodiversity. It is said that what does not get measured does not get managed. As a result,
economic growth mostly reflects the creation of material wealth, largely ignoring the
environmental and social costs of that growth process.

An important aspect: Sustainable Development

The growing discourse on sustainability challenges has sparked a welcome attempt to recast
traditional means of calculating economic growth. It is increasingly being felt that GDP
calculations must now account for the cost of environmental degradation as well as its
replenishment. This new approach, popularly known as the Green GDP, is expected to
reflect the true dimensions of economic growth. It will also provide policymakers as well as
civil society a realistic assessment of issues that need to be addressed for a more sustainable
growth of the economy.
Indias sustainability challenges mirror the global challenges and are indeed even more
daunting. The UNDP Human Development Report places India 119th out of 169 countries. It
says that around 55% of the population suffers from widespread deprivation. Nearly 421
million live in multi-dimensional poverty. In addition, with nearly 17% of the worlds
population, India has just 1% of global forest resources and 4% of water. Already, half of the
countrys arable land is water-stressed. Climate change for the predominantly agri-based
rural population means future loss of livelihoods apart from escalating the problem of food

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security. To compound matters, India will add another 500 million people by 2050. The
pressure on limited resources will become even more acute.
It is abundantly clear that the challenge before India is to enlarge the size of its Green
GDP while accelerating the creation of Sustainable Livelihoods. Long-term sustainability
of growth of the Indian economy will depend on how effectively this twin task is achieved.
Challenges of this magnitude can best be resolved through collective action by all
stakeholders in an economy. It calls for multi-dimensional efforts on the part of
Government, Business and Civil Society individually and collectively. The Government of
India has already initiated some laudable efforts. The Missions launched under the
National Action Plan on Climate Change, the initiative on Energy Certificates by the Bureau
of Energy Efficiency, schemes like the Mahatma Gandhi National Rural Employment
Guarantee Act and programmes such as the Bharat Nirman will undoubtedly contribute
significantly to the goal of sustainable and inclusive growth.

Calculation in Green GDP

2. Greenize the GDPthe Green GDP Accounting

(1). The Green GDP GDP indexes adjusted by the ecological environmental assets.
The green GDP = traditional GDP- environmental /ecological cost.
The environmental /ecological cost includes four aspects:
A. The defensive expenditure in the environmental damage.
B. The loss in resources environment.
C. The expenditure expenses of the restoration of the resources environment.
D. The expenses of maintaining resources environment.
(2). The Green GDP Accounting based on that of the Input and Output

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From the perspective of the input, irrational production activity can lead to wearing out of the
resource and environment pollution, while the draining of the natural resources and
environmental pollution directly affects the GDP. Meanwhile, the damage to the environment
caused by the final use should also be regarded as the cost of that through GDP distribution,
and redistribution and should be compensated by the GDP. The increased value created by the
environmental protection organizations (resources recovery organizations and pollution
treatment organizations) should be deemed as the newly increased portion of the GDP. Also,
the necessary input in the resources and environment in carrying out the environmental
protection activities (resources recovery and pollution treatment) by the environmental
organizations should also be deducted from traditional GDP. Hence, the calculating formula
of the related Green GDP:
Green GDP = Total new value created by traditional industrial sector - total input in resources
and environment (including the input from traditional industrial sector and environmental
protection organizations) - environmental damage caused by final use of the resources / total
cost + total new value created by environmental protection organizations.
From the perspective of the output, the traditional GDP is calculated on the basis of the total
volume of the products produced by the traditional industrial sector, and the final products
(output) equals the total output minus the cost. But in the process of production, various
traditional industrial sectors produce a large quantity of products goods and services,
which meet the demands of their own and the society. They are the positive output, which at
the same time, also damages the living environment (the drainage of the resources and the
environmental pollution) owing to the outer uneconomical production activities. Additionally
the increase value created by environmental protection organizations (resources recovery and
pollution treatment organizations) should be regarded as newly additional part of the output,
thus from the point of the output, the formula of the Green GDP should be:
Green GDP = Final total output of traditional industrial sectors - damage to the resources and
environment / total cost (created by the traditional industrial sector, environmental protection
organizations and the final using sectors) + total new value created by environmental
protection organizations.
Why measure green GDP? For environmentalists, well-being provided by nature is as
important as well-being provided by market consumption. Societies should be able to see
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how market consumption affects the consumption of public goods like beautiful views, clean
air, and clean water. After all, consuming fewer manufactured products now in order to
ensure more access to natural goods and services later may be in societys best interest.
Another reason to measure green GDP is that environmentalists want to track the provision of
natures benefits over time, either to hold governments accountable or to compare their
environmental conditions with those of another country. These reasons are also why
economists want to measure green GDP. Economists want society to articulate trade-offs,
measure performance, and maximize social well-being.
These tasks are impossible to achieve when natures contribution to human welfare cannot be
measured. However, green GDP requires measuring the benefits that arise from public goods
provided by nature. This is a significant measurement problem. But measuring benefits that
arise from the public good aspects of nature is fundamental to green accounting. Natures
public goods must be counted if welfare is to be comprehensively measured.
The calculation of a green GDP can and should be attempted. The benefits of nature are too
important and too large to be left off the table of national accounting.
Green GDP accounting units also should be distinguished from the many forms of counting
that arise within ecology. Clearly, ecologists count many aspects of nature that are important
to ecological science (e.g., biota).However, to count societys enjoyment, use, or
consumption of nature, economicsrather than ecologyare needed to define what is
counted.

Rio+20 Earth Summit Conclusions

In order to further understand the international commitment to Green GDP, lets look at the
commitments reached at the Rio+20 Earth Summit concluded in June, 2012 itself. It talked
about reaffirming the need to strengthen international environmental governance within the
context of the institutional framework for sustainable development, in order to promote a
balanced integration of the economic, social and environmental pillars of sustainable
development, and to this end agreeing to strengthen the capacity of UNEP to fulfil its
mandate by establishing universal membership in its Governing Council and call for

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significantly increasing its financial base to deepen policy coordination and enhance means of
implementation.
It was also resolved to establish a UN specialized agency for the environment with universal
membership of its Governing Council, based on UNEP, with a revised and strengthened
mandate, supported by stable, adequate and predictable financial contributions and operating
on an equal footing with other UN specialized agencies. This agency, based in Nairobi, would
cooperate closely with other specialized agencies.
Furthermore, it was recognized that sustainable development must be given due consideration
by the International Financial Institutions, especially the World Bank and the International
Monetary Fund, the regional development banks, UNCTAD and the World Trade
Organization in regulating global trade. In that regard, we request the international financial
institutions to review their programmatic strategies to ensure the provision of better support
to developing countries for the implementation of sustainable development. It is also
recognized that coordination and cooperation among the MEAs are needed in order to, inter
alia, address policy fragmentation and avoid overlap and duplication. We welcome the work
already undertaken to enhance synergies among the three conventions in the chemicals and
waste cluster. We call for further measures to enhance coordination and cooperation among
MEAs in other clusters.

Green Jobs Creation

Along with a special stress was put on creation and generation of green jobs as a measure of
social inclusion. In this regard, it was recognized that the development of human capacity is
essential to achieving broad-based economic growth, building strong, sustainable
communities, promoting social well-being, and improving the environment. Workers must
have the skills and protections necessary to participate in and benefit from the transition to a
green economy, which has great potential to create decent jobs, particularly for the youth, and
eradicate poverty.
It was also recognized that significant job creation opportunities can be availed through
investments in public works for restoration and enhancement of natural capital, sustainable
land and water management practices, family farming, ecological farming, organic
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production systems, sustainable forest management, rational use of biodiversity for economic
purposes, and new markets linked to renewable and unconventional energy sources. We
encourage business and industry to contribute to green job creation throughout their global
supply chains, including through support to small and medium enterprises. Also, it was
recognised and acknowledged that social well being and growth are also built on robust and
high quality infrastructure that creates jobs and wealth, adds long term value and allows for
broad inclusion. In this regard, we commit to enhanced infrastructure investment which
promotes sustainable development.

Conclusion

It needs to be understood that Green GDP and its involvement in the mainstream economic
setup of the country is fast becoming a necessity rather than a privilege and hence any
postitive action in this regard is more than just merely welcome. It is fundamental for a bright
future that nations change their very outlook towards development as various different
conventions have rightly pointed out. As far as home is concerned, India is currently working
on measuring its environmental economy for a so-called green GDP by 2015. The
government has set up a panel headed by noted environmentalist economist Partha Dasgupta
of Cambridge University for this purpose.

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